Track Record

Anyone can cherry pick their best calls. We certainly do not get everything right. Our framework has helped us catch a number of large market moves before they happened – we wouldn’t still be here otherwise.

So here are a few examples of those counter-consensus calls. A thorough list of all our directional calls is available to those interested as well. We welcome you to get in touch if you’d like to discuss our framework and track record in more detail.

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2016 China’s cyclical upturn

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Bio tech bubble May 2015

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Shale Bubble Sep 2014

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2013 Japan Abemonics Trade

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Beginning and End of the 2009-2012 Eurozone Crisis

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2008-2009 US Recession in Real Time

2018

Report Excerpt

Market Activity

JUNE 2018

From June 14th Monthly: “Chile’s sensitivity to copper is a concern… tightening liquidity conditions will not be favourable to the price of copper. Additionally, late-cycle dynamics do not benefit copper in the same way they benefit other commodities, and a large net-long in the speculative positioning leaves room for a sharp sell-off… Chile has large dollar-denominated debt, which it can normally service through copper exports. However, a copper sell-off would leave the economy vulnerable.”

Copper prices collapsed 17% by September 2018, while the Chilean Peso devalued by 10% against the US dollar.

MAY 2018

From May 10th Monthly: “Consumer staples is the worst performing sector over the last 12 months. Our tools have identified buying opportunities in a number of large and mid-cap companies…the time has come for consumer staples”

The SPDR Consumer Staples ETF (XLP) rallied steadily for the next 3 months, rising by 11%.

APRIL 2018

From April 12th Monthly: “For the past two years we have relied on our EM regime indicator to keep us in the trend for EM outperformance… [however] we can no longer ignore the weight of evidence across every other leading indicator we look at which suggests EM markets are very vulnerable. Global growth and manufacturing are peaking…50% or more EM markets have negative forecasted returns…Our China leading indicator has clearly rolled over and fallen sharply”

The MSCI EM index fell 16% over the next 6 months, unperforming the S&P by 20%.

MARCH 2018

From March 15th Monthly: “The Bank of England is too hawkish. We like leaning against BoE hikes, especially if the market prices in more than two hikes to keep up with Fed. UK inflation is peaking, while Brexit uncertainty is weighing on consumer confidence, the housing market and growth prospects”

From February 27th Weekly: “US energy equities are oversold relative to crude oil prices. Free cashflow is improving and the sector is starting to focus more on capital discipline. We like tactical longs in XLE, which is currently bouncing off 200-day moving average support.”

The SPDR Energy ETF (XLE) rose by 13% in the next 3 month.

JANUARY 2018

From January 9th Weekly: “Sentiment in Europe has soared to its highest level since 2001. Previous peaks in economic sentiment have coincided with declines in equities. Europe has become a very consensus trade…. economic surprises have already been rolling over in Europe, which is consistent with a weaker euro”

The eurostoxx 50 peaked in January after rallying for another 1.6% before falling 10% by March 2018. European equities then went to make a lower low in October 2018 15% below the January peak.

2017

Report Excerpt

Market Activity

DECEMBER 2017

From our 2018 Themes released December 19th: “There are many indicators that suggest the very low correlations and low economic volatility we experienced in 2017 will not persist, giving volatility an upward bias in 2018…the sensitivity of VIX moves to the S&P have surged this year. The same percentage drawdown in the S&P is likely to trigger a much greater move in VIX in 2018 given the compression in volatility we have seen in 2017. This means VIX calls should offer very asymmetric payoffs…”

February 2018 saw a huge volatility spike in US equities, with the VIX rising from 13 at January month end to a high of 50.

NOVEMBER 2017

From November 9th Monthly: “In our October 31st weekly, we alerted clients to a tactical sell on AUDNZD. We remain bearish on AUDNZD based on diverging growth prospects and stretched relative speculative positioning. Our main Australia growth leading indicator has also been falling since the summer and we are now seeing this being reflected in coincident data.”

AUDNZD fell 5% by April 2018.

OCTOBER 2017

From October 12th Monthly: “Retail has very well known problems, but investor sentiment is extreme, valuations are cheap, and our leading indicators for retail have improved…Major retail names have an extremely high short interest of nearly 15%, which far outstrips short interest after Lehman Brothers went bust.”

The S&P Retail ETF (XRT) rose by 22% over the next 3 months before selling off with the market in January 2018. On a subsequent 6 month basis, XRT was still up by 14% vs 4% for the S&P.

SEPTEMBER 2017

From September 14th Monthly: “Short-term interest rates in the US look too low given our inflation and employment indicators. We believe risk/reward now favours positioning for higher short-term US rates…The market has squeezed almost all Fed hikes out of the short-term interest-rate curve, with barely 10 basis points of hikes priced over the next 6 and 12 months”

US 2y yields rose steadily over the next 6 months from 1.3% to 2.3% by March 2018 and 2.7% by September 2018

AUGUST 2017

From August 8th Weekly: “S&P realised volatility has been driven to historical lows. The trailing 10 day realised volatility of the S&P 500 was just 2.88 at the end of last week. We like taking advantage of very low correlations and high skews by replacing US equity longs with call options.”

The S&P rallied by another 8% into year end.

JULY 2017

From July 25th Weekly: “Despite the extremely bullish sentiment on the NZD, the yield support has waned. The steady decrease in the differential between kiwi yields vs US Treasuries represents a growing fundamental negative for the currency. Historically, the currency has moved in lines with the ups and downs of the yield differential”

NZDUSD peaked 2 days later after rallying by another 1.6% before falling by 10% over the next 3 months.

JUNE 2017

From June 8th Monthly: “Inflation measures in the US have begun to dip, prompting some to fret about the return of so-called ‘lowflation’. We think this is premature…Our LEIs see a modest turn down in headline CPI over the next 6 months….a net modest upturn in core CPI over the next 18 months.”

US core CPI bottomed in August 2017 at 1.7% and rose steadily over the next year to a peak of 2.4% in July 2018. US headline CPI bottomed in June 2017 at 1.6% and rose steadily over the next year to a peak of 2.9% in June 2018.

MAY 2017

From May 11th Monthly: “Labour conditions in the US are much tighter than Average Hourly Earnings data suggest… wage pressures are already here, and are set to intensify. This points to a flatter yield curve”

US 2s10s flattened for the rest of 2017 from around 105 bps to just above 50bps by year end.

APRIL 2017

From April 18th Weekly: “We have had two reliable buy signals trigger for the Nikkei. Japanese equities are one of our top trades for this year, given the improved monetary backdrop and rising leading indicators. Our signals provide an opportunity to enter the trade or to add to (currency-hedged) positions.”

The Nikkei bottomed on the 17th of April. The Nikkei went on to rise by 10% in the next 3 months and by 25% by the end of 2017.

MARCH 2017

From March 8th Monthly: “Since the start of 2016, we have been very bullish on Brazil, with Brazil as one of our key themes for 2016. We now return to a neutral stance on Brazilian assets. Leading indicators are rolling over and positioning is bullish. The phenomenal performance of Brazilian assets last year does not look sustainable in the face of these headwinds.”

The MSCI Brazil index underperformed the MSCI EM index by 10% in the next 6 months, while experiencing a max absolute drawdown of -13% in May and July before recovering.

FEBRUARY 2017

From February 7th Monthly: “The single most important driver of EM returns is global liquidity conditions… Although liquidity conditions and valuations are still supportive of EM assets, sentiment and positioning has very much caught up. [We] Favour some EMs, including Turkish, Greek and Czech equities, and the Mexican peso.”

Over the next 6 months, in USD terms, the MSCI Turkey index rose by 30%, the MSCI Greece index rose by 50%, while the MSCI Czech index rose by 17% compared with the MSCI EM benchmark which rose by 17%

JANUARY 2017

From January 17th Weekly: “Economic leading indicators for Canada are mildly supportive of economic growth, but our leading indicators for equity returns are poor… One signal that we look at in the US and in other countries is the ratio of stock to bond RSIs… the signal in Canada preceded the corrections in 2006, 2007, and 2011. Given the very strong performance of stocks relative to bonds, it is likely we’ll see Canadian stocks retreat.”

The MSCI Canada index underperformed the MSCI World index by 13% over the next 6 months. Through July 2017, the MSCI World index rose by 10%, while the MSCI Canada index fell by 3%.

2016

Report Excerpt

Market Activity

DECEMBER 2016

From December 7th Monthly: “Mexico’s currency is very cheap based on fundamentals but its stock market is not at all cheap. We recommend investors buy the Mexican peso and selected companies that are cheap.”

The Mexican peso was the best performing currency against the USD in 1Q2017, although there was a final low for the peso in January before the rally started in earnest

NOVEMBER 2016

From November 9th Monthly: “There are forces pulling the dollar in both directions which will have cancellation effects…. Overall, we see the positive and negative factors for the USD broadly cancelling one another out and for the trade-weighted USD to remain roughly within its previous 6 month range over the next 3-6 months.”

The breakout of the dollar index in December proved to be a headfake, with the dollar trading sideways for the first four months of 2017

OCTOBER 2016

From October 4th Weekly: “Healthcare and rent are the largest portions of consumer spending and we have seen a big increase over the past one to two years. It should come as no surprise that previous increases in rental CPI and medical care have also corresponded to retail weakness.”

Retailers proceeded to under-perform the S&P 500 by 12% over the next 6 months

SEPTEMBER 2016

From September 14th Monthly: “central banks are likely to inject liquidity just as the real economy slows. This creates a sweet spot for excess liquidity, which will be supportive for still-depressed commodities. The sweet spot lasts until a growth slowdown becomes severe. This is the experience of the last three recessions in 1991, 2001 and 2008.”

The CRB Commodities Index recovered its losses from the June peak and rose 6% into year end.

AUGUST 2016

From August 30th Tactical: “The BoJ is struggling to create the virtuous circle of growth and higher inflation. It will, however, likely succeed in inflating equities. To try to achieve this, more aggressive monetary policy in Japan is looking likely at some point (with perhaps a deflationary shock as the catalyst). Meanwhile, M1 looks like it’s going only one way at the moment, which should be a boost for Japanese equities.”

The BoJ announced yield curve control in September and the Nikkei rallied 13% into year end.

JULY 2016

From July 13th Monthly: “As we look around the world today, banks appear to be the most beat up and cheapest sector we can find… While banks may suffer more as curves flatten further and the credit cycle deteriorates, an awful lot of bad news is already priced in.”

US Banks rose steadily from July and accelerated after the US election. The S&P 500 Banks index rose 35% from July to year end.

JUNE 2016

From June 15th Tactical: “Our Credit-Volatility Stress Indicator activated today. This indicates that behaviour in US equity markets has likely shifted from risk-on to risk-off. Brexit has clearly influenced the indicator, but we would be remiss if we didn’t point out to our clients one of our most reliable signals for a vulnerable US equity market. “

We did not predict Brexit, but our indicator allowed us to point to the great risk-reward of purchasing “Brexit” hedges even as the cost of these hedges rose in the lead up into the vote.

MAY 2016

From May 11th Monthly: “The surge in Chinese and emerging market liquidity means that the macro picture continues to support emerging market outperformance over DM… We expect this trend to continue for at least the next 3-6 months, as EM money growth surges, while DM money growth remains lacklustre. “

The MSCI EM index rallied by 12% to the end of September, outperforming the MSCI DM index by 8 percentage points.

MARCH 2016

From March 9th Monthly: “Capital flows into the US were the main driver of the dollar rally in 2014. These have begun to turn, and flows to EM are picking back up. This, along with fundamental overvaluation and a dovish Fed, likely means the dollar’s run is over for now, and instead the currency should display a modest weakening bias.”

The DXY index fell by another 5% into the beginning of May before stabilising.

FEBRUARY 2016

From February 2nd Tactical: “The VP Equity Leading Indicator looks at mean-reversion of valuation and technical factors to normalised levels. At present, this is forecasting significant upside for EM and Canadian equities. Given that these were heavily exposed to the commodities complex and were very beaten up, any signs of stabilisation in China (which our leading indicators expect around Q2-Q3 2016 this year) could lead to outsized gains in Canadian equities.”

From January 5th Tactical: “We are seeing signs of stress and strain in money markets and credit spreads that typically have preceded corrections and crashes. Our Crash Signal has triggered, and this means that the chance of a sell-off or crash are very high. It does not mean that a crash is guaranteed, but rather that the probability of a crash has risen significantly.”

The market fell almost 8% over the next 2 weeks before eventually bottoming down 10% in mid-February

2015

Report Excerpt

Market Activity

DECEMBER 2015

From our 2016 Themes released December 17th: “We expect 2016 to be better for EM, and we expect that EM equities will outperform those of DM…We expect money growth will augur a reversal in the developed-emerging equity market ratio, which has favoured developed-market equities since 2010.”

The MSCI DM/EM ratio topped out in January 2016 and reverted lower, reversing 5 years of DM outperformance seen from 2010-2015

DECEMBER 2015

From our 2016 Themes released December 17th: “We expect that the yen will strengthen modestly next year (against most crosses), and that periods of heightened volatility (which we also expect to see next year) will lead to the repatriation of domestic funds, and sharp bouts of stronger yen.”

USDJPY started the year at 120 and fell steadily to 100 by July

DECEMBER 2015

From our 2016 Themes released December 17th: “Sterling remains highly vulnerable to a big downturn. The current account deficit, the largest in the world after the US, is macro-economic risk number one for the UK. Add in a budget deficit of almost 4.5% of GDP and it is abundantly clear the UK is vulnerable to a disruption in international capital flows, or any major risk-off event.”

Even before Brexit was on the radar, GBPUSD had fallen 6% by the end of February. In the aftermath of Brexit, GBPUSD was down 13% from December 2015 levels.

NOVEMBER 2015

From November 11th Monthly: “Our leading indicators for China… are now turning higher as liquidity conditions begin to improve…given how negative sentiment has gotten towards China and abundant global excess liquidity conditions, we expect some relief for commodity markets and a liquidity-driven rally.”

The CRB Industrials Index stopped declining by the end of November and rallied almost 15% over the next 6 months

OCTOBER 2015

From October 6th Tactical: “After Friday’s rally, we have seen some significant buy signals that work near market bottoms. The rare McClellan Oscillator Buy Signal has been triggered. It marked the bottom in March 2009, the bottom in July 2010, the bottom after Fukushima in 2011, the bottom in 2012 in the European crisis, and the bottom last October. Our base case had been for the market top bottom later in October, in a typical eight week post-crash pattern. If our buy signals are correct, this would be one of the shorter, shallower corrections on record.”

The S&P 500 rallied 6% from the date of the report into mid-November

AUGUST 2015

From August 25th Tactical: “Global markets are experiencing a classic crash pattern… After all crashes, markets gyrate wildly for an 8 week period and retest the lows established in the first few days… After the period of harmonic oscillation, markets then rally. The good news is that crashes provide great buying opportunities when the dust settles.”

The US Equity Market remained volatile and went on to re-test the lows in Late September

AUGUST 2015

From August 18th Tactical: “The S&P 500 continues to trade within a very narrow range with the major moving averages now sitting on top of each other. The longer a stock is range-bound, the more stops build on either side of the range, giving fuel to a breakout move. The best way to take advantage of this situation would be via long volatility positions, eg straddles, which should benefit from a breakout.”

The VIX exploded from 13 on the day of the report to a high of 53 on August 24th

JULY 2015

“We have written three separate thematic pieces over the past few years pointing to the dangers of an extremely large debt bust in China…. Our call for economic weakness in China was based on our leading indicators for China, which have been very poor. They have accurately signalled economic weakness. Given the outlook for growth, we will see a weaker yuan, a looser monetary policy, and lower equity prices ahead.”

The China slowdown became widely accepted by the market when the Chinese RMB was allowed to devalue in August 2015. It has depreciated by 6% against the US Dollar by Jan 2016.

JUNE 2015

“We have long highlighted Turkey as one of the most vulnerable EMs given its precarious external situation. Now it is being bombarded by catalysts, including higher US yields and political instability… We expect Turkey’s … underperformance to continue while US and core European bonds remain under pressure.”

The Turkish Lira depreciated by another 10% against the US Dollar by December 2015, while the Borsa Istanbul 100 index fell by another 13% over the same period.

MAY 2015

“US equity markets continue to exhibit many of the features in common with market tops…We do not know in advance what the catalyst for a market downturn will be, but it is clear the market is displaying signs of fundamental vulnerability. Thus now is a good time to identify the intrinsically weakest stocks as potential short candidates. After all, the best time to buy insurance is before the fire.”

Although large cap stocks like the FANGs kept the S&P 500 index afloat for the rest of 2015, the broader market performed much worse with the S&P equal-weighted index falling 7%.

MAY 2015

“The biotechnology index is a big bubble, much like the technology bubble in the late 1990s…Fraud is rampant in the biotech sector. It is worse than almost any fraud we’ve seen…This report highlights the least attractive stocks that will likely be losers.”

The US biotech sector was down by 20% from the end of May to September 2015 and is down by 30% to January 2016.

APRIL 2015

“We have a few weekly buy signals on EURUSD… pointing to a EUR rally. However, with the EUR turning into a funding currency, we remain structurally very bearish EURUSD”

From the date of our report (April 21st 2015), EURUSD rallied 7% to 1.15. It then subsequently settled into a range of 1.05 to 1.15 for the rest of the year.

MARCH 2015

“Australia has a potentially lethal cocktail of high household debt, collaterised on high house prices, and an expensively priced banking sector that is also all-in on housing… The big 4 banks are priced for perfection, especially given the big equity market rally we have had to start 2015. Australian banks look like a pretty poor risk-reward investment.”

March marked the top for the ASX 200 Banks Index, which went on to fall 25% over the next 6 months

FEBRUARY 2015

“We are now seeing signs of a recession around the corner for Canada… The collapse in the price of oil has been so steep that the market has begun to price in rate cuts further ahead. The end result is that the yield curve has inverted in Canada.”

A technical recession was confirmed in Canada with negative growth in both 1Q15 and 2Q15. The Canadian stock market dropped by 15% from the end of February to December 2015, while the Canadian Dollar depreciated by 10% against the US Dollar over the same period

JANUARY 2015

“US transportation stocks will suffer due to the bursting of the shale bubble… The number of railcars carrying crude and petroleum products had doubled since 2011. This does not even include all the sand that was transported to fracture wells. Investors should pay close attention to US transportation and rail stocks, which will struggle at current valuations.”

The Dow Jones Transport Index topped out over the course of February and March, before declining for the rest of the 2015

2014

2014 Report Excerpt

Market Activity

DECEMBER 2014

“Russia represents by far the cheapest market globally and one of the most oversold. Periods of currency devaluation typically coincided with economic weakness and recessions, but they also preceded strong bounce backs in GDP growth in 1998 and 2008/09. We have no geopolitical expertise, but it is hard to find a more contrarian bet with cheaper valuations right now.”

Over the next 3 months, Russian markets rallied almost 25% in local currency terms and 40% in USD terms

NOVEMBER 2014

“With the end of the AQR, it looks like eurozone banks are lending overseas again, as external assets are growing faster than domestic assets. This removes a key support for the euro.”

The euro has remained weak over the next 3 months

OCTOBER 2014

“The market is currently experiencing extremes on many different readings. Investors are paying a steep price for short-term protection, the percentage of stocks at new lows is extreme, and almost all stocks are now in oversold territory. Markets tend to have short, sharp rallies when they reach these levels.”

The S&P 500 rallied 10% in an almost straight line for the next month

SEPTEMBER 2014

“The outperformance of US yields, both 2y and 10y maturities, from their G7 counterparts has been driving EM FX down of late. As the market tries to price in a Fed moving closer to tightening, emerging currencies are going to face an increasingly difficult time.”

The JPMorgan Emerging Markets Currency Index fell almost 10% in the next 3 months

AUGUST 2014

“We believe the BoJ will see the bigger risk as a total loss of confidence in their inflation goal if they let inflation slow too far, which is why we believe they will add to monetary easing by the end of the year, perhaps as early as October.”

The Bank of Japan significantly increased its quantitative easing program at the end of October

JULY 2014

“Australia is heavily dependent on Chinese imports, with China driving changes in Australia’s terms of trade. Australia has enjoyed extremely high terms of trade due to iron ore and coal exports to China. As these continue to fall, the Australian dollar will weaken.”

AUDUSD fell 7% over the next 3 months

JUNE 2014

“Positioning in ten-year US Treasuries is now almost back to flat, as short positions have been begrudgingly covered as yields relentlessly ground lower over most of the last two months. This opens up the door to a stronger dollar, which has struggled to rally much in the face of declining yields.”

The DXY index proceeded to rally 8% in the next 4 months

APRIL 2014

“Indonesia now has much good news priced in, and the risk/reward has diminished. We would advise investors with existing positions to reduce their size and/or move up trailing stops.”

The JCI has remained range-bound, trading within a 6% range for the next 6 months

MARCH 2014

“Mexico has been affected by the bad weather in the US, but we believe equities already have too much bad news priced in. Mexican equities are one of the worst performers year to date. Once the US data improve as weather effects diminish, Mexican equities could perform very well in the short to medium term.”

Mexican equities rallied 20% off the March lows over the next 6 month

FEBRUARY 2014

“Global midcap equity indices were star performers last year but trailing returns have now started to roll over. This is perfectly in line with forward-looking indicators and we would expect this to continue for all the main developed market mid-cap equity indices”

Midcap equities proceeded to underperform large caps and the general market over the next 3 months

JANUARY 2014

“Indonesian equities have made a stong bounce higher in the past few sessions and more upside is likely in our view.”

Indonesian equities was one of the leading performers in 1Q14, with the JCI rallying almost 15%

2013

2013 Report Excerpt

Market Activity

DECEMBER 2013

“Our forward-looking indicators for the bond markets are telling us to go long US 10y notes on a tactical basis: this is supported by one of the steepest yield curves on offer since July 2011 and July 2003”

The US 10 year yield fell sharply over the first quarter of the year, despite widespread consensus of higher rates

The spread flattened essentially halving over the following month yielding a very strong return

OCTOBER 2013

“Go long USDCAD on unravelling housing bubble in Canada”

USDCAD has broken strongly higher as the market expects an increasingly dovish BoC

AUGUST 2013

“Watch out for a countertrend rally in AUDUSD.”

AUDUSD bottomed towards the end of August and rallied almost 9% into the end of October

JULY 2013

“Digging into sector level, financials in EM are coming out particularly attractive on our models.”

The end of June/start of July marked an interim bottom in the MSCI EM financials index and the index performed strongly into 4Q13

“One of the most interesting divergences we are currently seeing in our models is the deviation between our equity leading indicators for the US and those for EM stock markets. The former is turning down and the latter is turning up.”

EM equities proceeded to outperform both the US and global benchmark index in the following months

JUNE 2013

“We are now seeing an across the board increase in interbank lending spreads, emerging market debt spreads, currency volatility, fixed income volatility, etc. Whenever we have seen these happen at the same time, we have seen spikes in equity volatility as well as drawdowns in equity markets.”

US equities and risk assets proceeded to experience a sharp drawdown in June in-line with our crash indicator

MAY 2013

“What we can say with relatively certainty at the moment is that government bonds are mispriced relative to fundamentals.”

US 10y yields proceded to increase significantly over the next few months in-line with our models

“Earnings downgrades point to weakness ahead for Australian equities. We retain our recommendation on short Australian equities.”

Australian equities proceeded to fall up to 20% into July in USD terms

“The information technology sector is the only sector with a valuation score currently turning up. Stay overweight information technology in the S&P 500 into summer”

S&P 500 information technology stocks performed strongly over the summer period

APRIL 2013

“Malaysian equities are likely to outperform EM as a whole, and perhaps even a global benchmark, over the coming 3-6 months”

Malaysian equities made a break up and outperformed strongly in the subsequent two months

MARCH 2013

“South Africa will come under pressure this year as some of the key supports of consumption – the major driver of growth – come under pressure. A balance of payments crisis at some point in the future cannot be ruled out.”

The ZAR proceeded to weaken steadily against the USD before a blow-off top in May 2013

November marked the month where the JPY broke out broke of the range against all major currencies and the Nikkei rallied substantially.

AUGUST 2012

“Likely cyclical bottom in China based on leading indicators despite weak growth. Real money growth provides a strong cyclical leading indicator for China regardless of a structurally slowing economy.”

Industrial production bottomed in August 2012 at 8.9% (YoY) and has since accelerated to 10.3% (YoY)

JULY 2012

“Buy Australian stocks on the basis of long term technical buy signal. Rate cuts will be bullish for the domestic stock market and global liquidity conditions remain loose which will reflect positively in Australian stocks.”

The S&P/ASX 200 index proceeded to rally 26% into end February 2013

JUNE 2012

“Likely short squeeze in bearish Euro positions; go long EURUSD. Draghi’s commitment to do whatever it takes to pre-reserve the euro as well as the widespread belief that the eurozone will break up provides a strong contrarian backdrop”

EURUSD rallied 10% into February 2013 and speculators moved from heavily short to net long.

MAY 2012

“Short RUBUSD and oil on short term weakness in the global economy as well as divergence between oil and commodity currencies.”

Economic growth continued to slow in China throughout the first half of 2012 and policy makers moved in with considerable easing.

APRIL 2012

“US lumber to show strong returns in the next 6-12 months on the back of a recovery in US Housing.”

Greece’s economy continued to contract and its debt to GDP ratio increased; in addition, a new debt restructuring deal involving official creditors was being openly discussed.

FEBRUARY 2012

“Monetisation of government liabilities by the BoJ remains the path of least resistance for dealing with Japan’s growing and unsustainable government debt burden.”

The BOJ continued to ease throughout 2012 and committed a substantial share of its easing programme to the purchase of JGBs.

JANUARY 2012

“Inflation has peaked in China, but industrial activity will continue to slow. Our leading indicators for China remain negative, but the fact that inflation has now peaked means the authorities will have room to ease more quickly.”

Economic growth continued to slow in China throughout the first half of 2012 and policy makers moved in with considerable easing.

2011

2011 Report Excerpt

Market Activity

DECEMBER 2011

“All our leading indicators for Europe are consistently more negative than the US and its global counterparts.”

European growth was abysmal in 2012 and the whole region was in recession throughout the year. Comparatively, the US managed to generate positive growth

SEPTEMBER 2011

“The global business cycle is driven by the changes in global central bank policy stances. The Variant Perception Business Cycle Financing Index leads the ISM and risk assets by six to nine months. As the following chart shows, the outlook nine months ahead continues to be negative and points towards a fall in the ISM.”

By the spring of 2012, global economic activity had significantly deteriorated, especially in the Eurozone area where activity in the core and periphery dropped back sharply.

APRIL 2011

“The combination of profligate fiscal policy and extremely loose monetary policy is toxic – The US is the only major country in the developed world that is implementing no budget cuts or fiscal austerity. It is also one of the few that is monetizing its own debt. This combination of extraordinarily large deficits financed via money printing has led historically towards higher yields and a weaker currency.”

The US dollar fell against most major currencies from May 2011 through August – falling consistently against the Euro from May 2011 to mid-January 2012.

MARCH 2011

“The S&P is beginning to look shaky. Although markets are currently roiled by a number of one-off events in North Africa and Japan, it is worth pointing out that the S&P has failed to reach new highs after testing 1343 on February the 18th. In addition, the S&P 500 has recently formed a meaningful top (and reversed) at a critical point on the 200 day moving average chart.”

5 months following this piece the S&P had fallen to 112.

JANUARY 2011

“A further economic downturn is highly likely in the European periphery – Divergence is growing in the eurozone with the periphery lacking any form of self-sustained economic recovery. Forward looking indicators are highlighting a return to contraction in the PIIGS. The contraction in real M1 is spreading from weaker periphery members to Italy. While the ECB is currently very reluctant, it will ultimately need to monetize more periphery debt.”

The ECB proceeded to engage in extensive debt relief programs in late 2011 and early 2012; including the LTROs, reducing the reserve ratio and relaxing collateral standards.

“Sovereign risk underlines the need to hedge currency debasement. Rapid expansion of money supply in many countries and the large increase in government liabilities will have long term inflationary consequences. Gold has lagged most risk assets recently. Most of the extremely bullish sentiment towards gold has dissipated, even as gold makes new highs.”

Gold advanced for 8 months following this call, reaching a peak of $1,900 in September 2011.

2010

2010 Report Excerpt

Market Activity

NOVEMBER 2010

“We continue to view emerging markets as the ultimate beneficiaries of excess liquidity although tactically most risk assets are set for short term pullbacks based on complacency and extremes in bullish sentiment.”

Most emerging markets topped out at the time we gave this warning.

“2011 will be the moment of truth for the eurosystem – Either the core countries will find a way to pay for the mess the common currency experiment has created, or contagion will spread beyond individual countries and straight to the heart of the euro itself. The continuing viability of the common currency being a growing focus for market concern and attention.”

“Spain’s troubles are far from over. Although it is still too early to say if it will be the ‘straw that broke the camel’s back’ and lead to the disintegration of the European Monetary Union, it is clear its troubles are far from tractable, and will linger for some time to come. We think the euro is a political project, not an economic one. We anticipate further monetization of periphery debt. Investors should continue to watch Spain very carefully.”

Into 2012, high unemployment and a weak banking system in Spain continue to threaten the future viability of the Euro project.

APRIL 2010

“The leading indicators for China and Brazil have turned up very strongly. China and Brazil are representative of most emerging economies in that they have returned to health rapidly after a brief hiatus during the financial crisis. Strong fundamental stories will further attract loose liquidity seeking yield. Indeed—we are on the cusp of a new flow of liquidity to emerging markets.”

IBOV trended upward for the next 7 months following this call.

MARCH 2010

“Foreign exchange volatility to remain high – Foreign exchange volatility will remain high in absolute terms and relative to other asset classes. We argued this months ago, and this continues to be the case.”

“Emerging economies will tighten ahead of developed economies – In most cases this will be to try to subdue inflation. However, they will have to act very aggressively to avoid being overwhelmed by global liquidity.”

Though central banks raised rates, annual inflation rates in emerging and developing economies in 2010 were 6.064%, and rose to 7.142% in 2011.

“We believe the European periphery would be experiencing a 1997 Asian-style crisis absent emergency liquidity facilities by the ECB. Current market jitters mean that there is very little chance the ECB will be able to withdraw its liquidity facilities. This is bullish for global liquidity and negative longer term for the Euro.”

“Our own Variant Perception Lending Index, which uses a variety of US forward looking fundamental factors, shows that we can expect a resumption of lending growth by the end of 2010. (The surge in actual C&I loan growth in 2007/8 was largely due to banks taking on their balance sheets assets from SIVs as the financial crisis worsened).”

C&I lending continued to rise from March 2010 on until July 2011, from $34,504 mill. to $54,408 mill.

2009

2009 Report Excerpt

Market Activity

NOVEMBER 2009

“We believe the market is underestimating the probability of a UK debt/currency crisis. We are long-term negative on UK government debt, and we are negative on GBP against other currencies whose country’s fiscal situation is relatively sound, eg most Asian currencies (INR, IDR, PHP, HKD, SGD), and some of the commodity currencies (eg NOK, CAD, BRL).”

The Pound fell broadly against other currencies following this call. GBP/USD fell from around 1.68 to 1.4 against the US dollar from November 2009 to May 2010. The fall against other currencies: the CAD, NOK and BRL, was also dramatic and persistent.

OCTOBER 2009

“The deflationary crisis in Eastern Europe and Southern Europe is not over. We believe that the crisis in Eastern Europe and Spain is ahead of us, not behind. The sharpest part of the downturn has past, but we foresee prolonged deflation in the Baltics and Spain in particular.”

Eastern and Southern European economies continued to contract amid an economic slump and credit crunch.

AUGUST 2009

“We hate to bang on about Spain like an old Salvation Army drum, but we believe that Spain is a disaster waiting to happen. Misunderstanding the severity of the crisis will prove costly to investors as it will have profound implications to the European banking system. Spain is set for a long, painful deflation that will manifest itself via a spectacularly high unemployment level for an industrialized economy, a real estate collapse and general banking insolvencies.”

Spanish unemployment continued to increase to close 20% in the next 12 months and bank insolvencies and defaults rose.

JUNE 2009

“We believe the recession is over and we will see a short, sharp cyclical upturn. The cyclical upturn should not be confused with a secular upturn. The consumer balance sheet remains under severe pressure.”

The NBER Business Cycle Dating Committee did not officially call the end of the 2007 recession until Sept. 2010 – at which time they determined that a trough in business activity in June 2009 marked the beginning of an expansion.

“Central Banks will continue to saturate markets with liquidity until they get inflation. Given the potentially infinite resources at their disposal, the will NOT fail in this endeavour—despite the deleveraging in the household and private sectors.”

Central banks continued to expand their balance sheets into late 2009.

The price of Gold rose by $300 over the next 8 months, from below $900/ounce in April 2009, to more than $1,200/ounce by the end of November 2009.

MARCH 2009

“The devaluation of the Baltics, and the pain that it will cause European lenders, will probably be the last gasp of any coming emerging market crisis, we have not yet seen the weakest Emerging Market players be picked off.”

Latvia was temporarily saved in the summer of 2009 by an IMF and Swedish bailout.

“The stock market will likely bottom when it is at true extremes. By many measures the stock market is at historic lows in terms of valuation and rolling ten year returns. However, previous secular bear markets have bottomed at much lower levels.”

The stock market bottomed in March 2009.

JANUARY 2009

“Governments around the world are drawn towards beggar thy neighbour currency devaluations and protectionism in times of crisis.”

“The unwinding of leverage, consumption and excessive construction will take years to play out. An increase in savings rate will replace excessive consumption. A shift towards retail and finance in the US economy will be reduced.”

The US savings rate reached a near term peak of 7.1% by May 2009, the highest savings rate since the Crisis months of 2008.

“Industrial production is negative almost everywhere in the world and in many places is down almost 20%. Exports from countries like Japan, Korea, and Taiwan are down almost 50% year over year! This will lead to a negative GDP for the first time in almost 50 years.”

Most countries spent the first half of 2009 in recession.

“The burden of adjustment in many countries around the world will have to fall on employment, and in 2009-10 we will see a very large spike in unemployment.”

Unemployment rose to record levels in most countries.

2008

2008 Report Excerpt

Market Activity

DECEMBER 2008

“Investors and analysts now accept that we will have the worst recession since the Great Depression. However, we will not see anything like the Great Depression in terms of CPI declines or decreases in output due to massive monetary and fiscal policy responses.”

Declines in inflation have been modest around the world, despite the biggest drop in economic output in decades.

“When the market bottoms, we will see a few things: commodity price stabilization, the market will not selloff on bad news and we will see improving news flow in some sectors, increasing stock market volumes on days where the market trades up. So far none of these are in place.”

The market did not bottom in December, and instead bottomed in March 2009.

“A good trade now would be to short equities and long high grade bonds.”

Corporate bond spreads peaked in December 2009.

NOVEMBER 2008

“Countries with overvalued real exchange rates will suffer the most in the downturn. Spain, Ireland, Latvia, Lithuania, Estonia, Romania, and Bulgaria have enjoyed rising real exchange rates (via membership in the Euro or a peg) for years when the global economy was doing well. Now that the global economy is slowing the burden of real adjustment will fall on employment. Many countries, most likely the Baltics and Bulgaria, will have to devalue. Countries with managed floats, like China will likely seek to devalue as well”

“Before the current crisis is over, we can expect over 100 small bank failures.”

According to the FDIC, by October 2009, 115 bank failures had been reported.

“As the economic situation gets worse, the pound is likely to fall further.”

The pound bottomed at 1.35 against the dollar in 2009.

OCTOBER 2008

“The current levels of volatility and risk aversion are beyond anything we have ever seen. Typically when markets are very oversold, they are prone to vicious short squeezes. We are likely to see very strong countertrend rallies. Investors should get used to much higher volatility going forward.”

VIX continued to climb and peaked in December 2008.

AUGUST/SEPTEMBER 2008

“Markets subject to violent swings in the foreseeable future.”

VIX peaked later in the fall and stock markets crashed.

JULY 2008

“Central Banks are worried about Debt Deflation—Consumers and households in the US, UK, Ireland, Spain, Australia, New Zealand, Denmark and the Baltics face the prospect of crushing debt. The easiest way to lighten the load is to cut interest rates aggressively and try to counteract any fall in the money supply. Ultimately this will lead to an inflationary endgame that will be very bullish for gold.”

Gold prices reached a record in late 2009.

JUNE 2008

“Just as the leading economic indicators in the US predicted the US recession, the leading economic indicators in Europe are now pointing towards a downturn in the Euro area.”

The Eurozone entered a recession in late 2008.

“Of all European economies, those most affected will be Spain and Ireland. They are already falling off a cliff in terms of a collapse in retail, car and home sales, declining home prices, rising unemployment, and the drying up of household credit.”

Ireland was the worst performing equity market in Europe in 2008 and declined by 80% from its peak.

“The bust in Ireland is just starting and will be very severe. Remain short almost anything in Ireland. Ireland will face a breakdown of its banking system and consumers.”

Most major Irish banks were nationalized in the fall of 2008.

MAY 2008

“Markets in the US have moved from oversold conditions in March to overbought. The bear market is still not over, and the US recession is just beginning. Stocks will not continue to rise despite deteriorating fundamentals.”

Stocks declined and the stock market crashed in the fall of 2008.

“Bank lending is extremely difficult to come by, and this will lead to a wave of defaults. Banks are unlikely to resume lending until the interbank market is healthy again. This will be a function of the creditworthiness of counterparties and not the availability of central bank liquidity.”

Interbank spreads blew out in late 2008.

“Oil has moved so high, so quickly, it is likely to fall hard when it breaks.”

Oil crashed after peaking at $147.

APRIL 2008

“The US is in a bear market downturn.”

The US experienced the largest stock market downturn in over 70 years.

“Use countertrend rallies to short banks and go long gold and other commodities.”

“Consumer spending is likely to go much lower once the cyclical factors move into full gear. Job creation is slowing and unemployment is now rising. Personal consumption has continued to fall based on the steep decline in the Leading Economic Indicators and the ECRI Leading Index.”

Personal consumption declined throughout most of 2008-09.

“Europe and the rest of the world will not decouple.”

Despite the strength in the Euro, Europe entered a recession in the summer of 2008.

“Australia is ready for a slowdown.”

The Australian dollar fell the most among major currencies.

“Volatility follows the credit cycle. If you lag Commercial and Industrial loans (C&I Loans), you will see that it corresponds very closely to moves in equity volatility. Not only do current lending rates indicate higher levels of volatility, but the credit crunch also points to much greater stress to the stock market.”

VIX Index moved substantially higher in late 2008.

MARCH 2008

“We have yet to see all of the late cycle inflation, so we can expect throughout the rest of the year to see negative real Fed funds rates, much as we saw in 2002 – 2004.”

Real interest rates remained deeply negative for the rest of the year, driving oil and other commodity prices parabolic in the summertime.

FEBRUARY 2008

“Weakness in the US economy is evident. Traditional indicators point toward a recession.”

The ECRI Leading Index Growth Rate decreased sharply until December 2008, where it increased sharply, indicating economic recovery.

“Cyclical factors are showing slack in the world economy.”

World economic growth has decreased significantly over the past two years.

“Leading indicators point to European slowdown.”

Europe entered recession in the summer of 2008.

“Spain is the European country most vulnerable to a major real estate burst. The burst will be much greater in magnitude than anything seen in the US.”

Spain’s 1,000,000 empty homes are weighing on the balance sheets of the banks. Investors are now focusing on Spain.

“Volatility is high and will likely remain so for most of the year.”

The VIX reached record levels in late 2008.

JANUARY 2008

“Inflation is a lagging indicator. Inflation peaked in the middle of the past two recessions, only declining after the recession was over. For cyclical reasons and the stickiness of prices and wages, higher pricing tends to occur at the end of business cycles. We will likely see the ECB, the Fed and the BOE cutting interest rates into higher inflation numbers.”

Inflation continued to climb from 2007 into late 2008 while central banks cut rates furiously.

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